Half Sigma

The value of an MBA

In the previous post about the clown’s wife who has a state school MBA, there was a discussion in the comments about the value of an MBA. This is a topic I don’t think I’ve written about before, even though it seems like something I should have written about before.

Unlike a law degree, which is looked upon with suspicion if you don’t actually use it to practice law (and the same probably applies to other weird degrees, such as a PhD in Philosophy), the MBA is always viewed as a plus factor in the business world. A plus factor means that no one will hire you because you have the credential, but it’s looked at favorably when you are compared to candidates who don’t have it, especially if you are looking to get promoted to management. But keep in mind that it’s a small plus factor and not a huge plus factor.

The exception is if you earn an MBA from a very prestigious business school such as Wharton, Harvard, Stanford, or Columbia. People will hire you because you have such an MBA, and you can get hired into a prestigious and high paying investment banking, hedge fund, or management consulting career track.

If you can get accepted into a top MBA program, such as the four schools mentioned above, you should definitely borrow all the money it takes to pay for the education. On the other hand, it’s not worth borrowing a huge amount of money and taking off two years from work in order to get an MBA from a run-of-the mill school.

You never see me complaining much about my MBA because I didn’t give up much in order to get it. It was an evening program at Arizona State University, so I didn’t have to give up my job in order to obtain it. The work was really easy, so I didn’t have to study too hard. The tuition was inexpensive state school tuition and not expensive private school tuition. (One should note that evening MBA programs are very common, while evening law school programs are pretty rare. This is because law school is way too difficult to do simultaneously with working full time, unless it's stretched out over a long time. NYU has an evening LL.M. in Taxation program that stretches out over three years. In comparison, my evening MBA program at ASU was only two years, the same length of time as the day program.)

As a plus factor in non-prestigious career tracks, no one cares very much if the MBA was an evening program or a day program. So my advice is that if you can’t get into a prestigious program, do the least expensive evening MBA program that you can find. The exception, perhaps, is if you live in New York City, and you have the option of doing the evening program at the Stern School of Business at NYU. Maybe this is prestigious enough to justify NYU’s very expensive tuition? I have to think about that. The day program at Stern will be more likely to get you hired into a prestigious career track, but Stern is a big step down in prestige from Columbia, so I also have to think about whether Stern is worth it if you get rejected from Columbia. (Of course, if your parents are willing to pay for your education, you should take whatever education they're willing to fund. Parents seldom give their twenty-something children the choice between an education and a $100,000 check, so between fully funded education and nothing, fully funded education is a great deal.)

Zillions of people in the business world have an MBA, and because anyone can get one, it doesn’t necessarily prove that the holder knows anything. I said before that it’s a plus factor, but if I were interviewing someone for a job, and they had an MBA on their resume, I’d ask them some basic questions that someone with an MBA ought to know, such as “explain net present value” or “explain depreciation.” A former manager of mine, who had an MBA, didn’t know what depreciation was. This is very pathetic in my opinion. She ought to have her degree taken away from her.

More thoughts about the best high schools

I guess that no 8th graders are reading my blog, so this post is aimed at parents selecting a school for their children.

What are reasonable criteria for judging the best high schools? We can’t judge them based on the high paying jobs offered to the graduates, because anyone starting their career right out of high school is most likely destined to live the life of a blue collar prole. Nearly all high paying career tracks (besides baseball player) require a college degree. So judging high schools based on results, there can’t be a better criterion than how the high school helps its students get into top colleges. The list from yesterday’s post is therefore a really good starting point.

Some commenters made the very valid point that merely looking at the percentage of a high school’s graduates who enroll at top colleges doesn’t necessarily tell us if the high school really helped get the students into such colleges. The SAT mostly measures g, and g is mostly an innate trait, so the same kid would probably get close to the same SAT score even if he went to a crappy public high school.

However, SAT is not the only thing that colleges look at. I previously blogged about the kid with the perfect SAT score who was rejected from Princeton, Harvard, Stanford, MIT and the University of Pennsylvania. Is it any surprise that the kid went to a public high school in New Jersey? If he went to an elite private school, they would have groomed him such that his CV would have had the leadership activities that top universities are looking for. One of the differences between a top private school, and a regular public high school, is that the private schools see their mission as preparing kids for entrance to top universities, while regular public high schools just care about whether all the kids pass the reading and math test so that they don’t get dinged by NCLB.

U.S. News the cause of high college tuition

Kevin Carey explains how U.S. News and World Reports is [] responsible for out of control college tuition. His logic is impeccable:

10 percent of the rankings are a function of spending per student ... If a university were able to figure out how to reduce its costs by, say, 10 percent, while holding quality constant, and it chose to pass those savings along to its customers in the form of a tuition decrease, its U.S. News rankings would go down. If, on the other hand, it became 10 percent less efficient and passed the cost onto customers in the form a tuition increase (not a hard thing to do if you're a selective college), its ranking would go up. All of this stems from a deficit of reliable, comparable, institution-level measures of quality. Thus we have this crazy higher education market with no value proposition, one where cost and quality are assumed to be the same thing -- and in the sense that high-end higher education is a luxury good that primarily serves to signal your exclusive ability to acquire and pay for it, they are the same thing.

Go look at the U.S. News methodology yourself. The SAT scores of the students are a mere 7.5% of the ranking. But direct spending is indeed 10% of the ranking, and "Faculty Resources" is 20% of the ranking, and 80% of that 20% is directly or indirectly determined entirely by the faculty payroll. So 26% of the ranking is based on how much money the college spends. Obviously the incentive for prestigious colleges is to spend as much as possible (mostly on faculty) to boost its ranking.

It's funny how there's so much whining about how it's unfair that college rankings are based on SAT scores, but in fact, how much money the college spends is more than three times as important to the rankings.

Using this rating system, a school like Cooper Union that "admits undergraduates solely on merit and awards full scholarships to all enrolled students" but provides a no-frills education will never rise to the top of the prestige rankings. Once upon a time, Cooper Union was a prestigious school, but its prestige has been killed by U.S. News. Nowadays, no one had even heard of it. Merely providing quality education to the brightest students doesn't cut it.

States are cheating on No Child Left Behind

An article in yesterday's NY Times about how academic standards vary widely between states is surely of no surprise to people who read bloggers such as Steve Sailer. To quote from the article:

Academic standards vary so drastically from state to state that a fourth grader judged proficient in reading in Mississippi or Tennessee would fall far short of that mark in Massachusetts and South Carolina, the United States Department of Education said yesterday in a report that, for the first time, measured the extent of the differences.

...

[No Child Left Behind] requires that all students be brought to proficiency by 2014 in reading and math and creates sanctions for failure. But in a bow to states’ rights it lets each state set its own standards and choose its own tests.

I've written before about No Child Left Behind and incentives. This demonstrates again the power of incentives, and the dangers of incentivizing the wrong behavior. Now that federal education money is tied to test scores, states have a strong incentive to demonstrate "progress," but such progress is more easily demonstrated by gaming the system, both through easier tests and older test takers, rather than by increasing the reading and math ability of school children.

The majority of differences between the measured ability of school children are innate biological differences and not the result of differing quality of education. And the better the overall quality of education, the more the tests measure innate biological differences, because overall higher quality education means that children are being brought closer to their innate biological ceiling.

Elsewhere in the NY Times article are some especially moronic comments from Margaret Spellings, the Secretary of Education.

Education Secretary Margaret Spellings said in a statement, “This report offers sobering news that serious work remains to ensure that our schools are teaching students to the highest possible standards.” Still, in a conference call with reporters, she said it was up to the states, not the federal government, to raise standards. [emphasis added]

What is No Child Left Behind about if it's not about taking control of education away from the states? How can she say, with a straight face, that the biggest federalization of education since the beginning of our nation has anything to do with states' rights?

Ms. Spellings said, “It’s way too early to conclude we need to adopt national standards” and added that it is also too early to conclude that state standards are too low.

Once again, any moron can see that the only way to accurately compare states' progress (or lack thereof) is to have uniform testing standards. This requires both a uniform test as well as uniform age categories.

What Harvard is selling

I recommend Steve Sailer's latest VDare column on Harvard.

But there is one part I'm going to disagree with:

Nonetheless, there may be one thing Harvard can't afford: to be honest about what it is really selling. Summers, with his talk of IQ bell curves, came perilously close to spilling the beans, So he had to go.

What students are actually buying from Harvard is not so much a Harvard education as Harvard's certification that, as high school seniors, they were among the country's best and brightest. (A Harvard degree doesn't add much distinction over just getting in, because 96 percent of Harvard freshmen graduate.)

There are, however, potentially much quicker and cheaper ways to certify such things than to spend four years and $185,000 at Harvard—for example, IQ tests.

No, Harvard is not selling IQ certification, Harvard is selling its prestige. How could Harvard be selling something that hardly anyone believes in? Blog readers who hang out in the "Sailersphere" can get the mistaken impression that IQ is commonly understood to be important. But this is not true. The vast majority of people in the overclass, if asked, will adamantly insist that IQ is meaningless, or even worse, sinisterly racist. And for the most part, they believe it too, although there are a few, like Larry Summers (before he accidentally spilled the beans), who keep their beliefs to themselves, like a Jew pretending to be a goyish Nazi. But I think they are a pretty small number of people.

Harvard and other elite universities are looking for future leaders, and while too low of an IQ is a bar to high level leadership, it's possible that too high of an IQ is an equal bar. George Bush, leader of the free world, is widely ridiculed for being dumb, yet he scored higher on his SATs than a lot of other high level politicans.

Part of being a future leader is having the right familiy connections, so Yale and Harvard gladly accept applicants, such as George W Bush, who are sons and daughters of importnant people, while nerdy super-high IQ applicants are rejected.

Some people in the Sailersphere make the argument that court cases prevent employers from using their own IQ tests and thus they are forced to rely on prestigious degrees, but I don't buy this at all. If there were a big mass desire on the part of companies to use IQ they'd figure out how to do it. Google (one of the most successful companies of the decade), for example, relies heavily on IQ. Companies (a limited subset of companies such as investment banks) prefer graduates from top schools for reasons of prestige and tradition and not a scientific analysis of why they are better employees.

No Child Left Behind and liberals

No Child Left Behind works on the assumption that the primary, if not only, reason why some children perform below grade level on tests is because they received inferior education.

If the above paragraph were true, then No Child Left Behind would be a fabulous law. Because it sets out to measure how well schools are performing and financially punishes those schools that are failing to properly educate children.

No Child Left Behind works on the important truth that people respond to incentives. And we see that this theory works very well. Since No Child Left Behind has been enacted, schools all over the nation are now "teaching to the test" in order to boost their students' test scores. This is a fine example of how people respond to incentives.

So why do liberals hate this law so much? Do liberals just instinctively hate anything that Bush does? Do they believe that government should just give money away to school districts without any sort of accountability?

No Child Left Behind does not force any school districts to "teach to the test." If school districts know of better ways to properly educate students, why aren't they using those methods? Before "teaching to the test," the majority of students performed at grade level on the tests. Why don't the schools in poor neighborhoods just use the superior teaching methods of the schools in the middle class and upper middle class neighborhoods? Obviously, educators have absolutely no idea how to increase the performance of students and therefore they are stuck using the only method that actually improves test scores, which is the "teaching to the test" method.

Only when liberals come out and acknowledge the fact that children come to school with a biological level of intelligence which no amount of educational technique can change, only then do they have any right to criticize No Child Left Behind. Because the irony of No Child Left Behind is that it agrees with the liberal dogma and then dishes out the appropriate bitter medicine. But to continue with this analogy, if a doctor prescribes medicine based on an incorrect scientific understanding of the disease, the medicine can do more harm than good.

Is "teaching to the test" bad? It depends on the type of test. If you are teaching a knowledge based subject like History or Biology, teaching to the test simply means that the teacher is teaching the required curricululm. But things are different for reading tests which really are as much IQ tests as they are tests of teachable reading skills. Perhaps the best way to help children read better is to have them read a lot, and constant drilling of reading test questions is only coaching them to take reading tests and doesn't develop useful real world reading skills. Furthermore, repetitive drilling of reading test questions may come at the expense of other teaching that would be more useful for lower intelligence children. But in order to create an appropriate curriculum for lower intelligence chilren, we have to begin by acknowleding that they have lower intelligence in the first place and that no amount of education will alter their brain biology.

Increase demand by raising the price

How do you increase demand for your product? If your product is a college education, you can increase demand by raising the price (from the NY Times):

John Strassburger, the president of Ursinus College, a small liberal arts institution here in the eastern Pennsylvania countryside, vividly remembers the day that the chairman of the board of trustees told him the college was losing applicants because of its tuition.

It was too low.

So early in 2000 the board voted to raise tuition and fees 17.6 percent, to $23,460 (and to include a laptop for every incoming student to help soften the blow). Then it waited to see what would happen.

Ursinus received nearly 200 more applications than the year before. Within four years the size of the freshman class had risen 35 percent, to 454 students. Applicants had apparently concluded that if the college cost more, it must be better.

“It’s bizarre and it’s embarrassing, but it’s probably true,” Dr. Strassburger said.

Yet another example of irrational consumer behavior.

Colleges lie and cheat

Under a 1990 law known as the Clery act, schools must report statistics on certain crimes, including burglaries, to the Education Department, students and staff.

A Wall Street Journal article reports that colleges have been lying on these statistics in order to make themselves more attractive to prospective students. Harvard seems to be the only honest college, reporting 446 burlaries in 2004. Nearby Northeastern University somehow had only five burglaries. I guess Harvard is so confident in its reputation as the best school, it's the only school which doesn't need to lie and cheat. (This is a trend I've noticed in people as well--once people get to the top they can be come honest, but in order to get to the top they had to cheat.)

I've complained before that statistics released by colleges shouldn't be believed because they're not audited by independent auditors, and colleges have the same incentives to cheat as public companies, which we know not to trust--even after audit by independent account firms, scandals involving companies' financial statements keep surfacing. This article proves my assertion that colleges need to be treated more like public companies. All of their statistics need to be audited by independent auditors.

How much is education worth?

Here's a hypothetical example. A family has two children. The older child is starting kindergarten this year. The younger child is starting kindergarten in three years.

Suppose that a decent private school costs $20,000 per year, and that the appropriate real discount rate is 4%. (Considering that tuition can be expected to continue to rise faster than inflation, that discount rate may be too high.) Tuition is paid at the beginning of the year.

We calculate that the value of education for those two children is $388,000.

That's how much extra rational parents might pay for a house in a neighborhood with good public schools instead of living in a neighborhood with bad public schools (no doubt full of minorities) which would force the parents to pay for private schools.

I'm told that private schools cost more like $30,000 in New York City, so make that a $582,000 premium for the suburbs of New York City. (However a growing percentage of private school students have their grandparents paying the bills.)

UPDATE

I love this quote from the NY Times article:

"My father pays tuition for the girls, and I'm just grateful beyond belief," said Sunny Bates, who has one daughter at the Dalton School in Manhattan and another joining her there this year. "I think that's incredibly common. You have all these people who grew up in New York when it wasn't so ridiculously expensive, and are now in careers in the arts, or the nonprofits, that don't pay very much, and they couldn't possibly give their children the kind of life they had without some help."

How stupid rich kids can still attend a good college

According to the NY Times, a disturbing trend is that small liberal arts college are making the SAT and other standardized tests optional for admission.

It's disturbing to me, but the tone of the article sounds gleeful.

“Test scores are a much weaker predictor of how students will do in college than their high school transcript,” said Mark Gearan, the president of Hobart and William Smith

Now that's only true if high schools can be compared and the transcripts are meaningful. Many high schools are withholding class rank, thus making the transcripts meaningless.

Furthermore, it has been shown that high school grades plus SAT is a better predictor of how students will do in college than just the high school grades by themselves.

One parent, who I'm sure only votes for Democrats, had this to say:

I think SAT-optional is great, it’s wonderful,” said Lynne Brandes, of Hanover, Mass., who took her daughter, Jacqueline, on a New England college tour this summer. “Some families have the money to pay for tutoring, but some don’t. I’d love to see the SAT’s abolished.”

Lynne Brandes clearly has a complete lack of understanding of how college admissions work. The SAT allows middle class and even working class students to demonstrate they are as smart as upper middle class students. Without the SAT, the upper middle class students will have a huge advantage over the lower classes because they will go to upper middle class high schools where they are encouraged to take the right classes, participate in the right extra-curricular activities, and have the right summer experiences (such as paying $7,000 to learn about poverty). The working class and middle class kids will have a crappy application in comparsion to the rich kids. When you add on top of that the fact that the rich kids' parents can afford to pay full tuition, it's hard to see how how eliminating the SAT benefits the kids of less well off parents.

Maybe the no-test trend has the racist intent of keeping high scoring but undesirable Asian students from invading the small liberal arts colleges?

* * *

One factor the article mentions is that "the revamped, longer SAT" is contributing to "growing disenchantment" with the test. Now what did I say about the new SAT in the past? In November, 2003 I wrote, "The SAT has done a good job for many decades. Messing around with the SAT seems more likely to make things worse than to make anything better."

It turns out that I was right! Why doesn't anyone ever listen to me?

In other SAT news, SAT scores are falling, either because of "test fatigue," or because the longer test is discouraging test takers from retaking the test.

Admission to "elite" NYC public high schools

There’s an article about my high school in the New York Times.

Despite the fact that blacks make up 34.7% of the school system, they are only 2.2% of the student body at Stuyvesant High School, which limits admission to students who score high on an admissions test.

Officials are “at a loss” to explain why so few blacks qualify despite the existence of a “special institute to prepare black and Hispanic students for the mind-bendingly difficult test “

The demographic makeup of Stuyvesant has changed significantly since I graduated. When I attended, the student body was mostly white, but today it’s mostly Asian and whites are a minority. This is an expected result of continued "flight" of middle class whites from New York City. The whites who are left are either blue collar whites living in the outer boroughs, or rich whites living Manhattan who can afford to send their children to private schools.

In case you are wondering about my opinion on what should be done about the “problem,” my answer is that nothing should be done, Stuyvesant should continue using an exam as the sole criterion for admission. Intelligent students whose parents can’t afford to send them to a private schools need a place to go where they can be among other intelligent students.

Rank colleges? Or rank students?

An essay in today’s NY Times by David Leonhardt is generally dismissive of the U.S. News college rankings:

By now, 23 years after U.S. News got into this game, the responses have become pretty predictable. Disappointed college officials dismiss the ranking as being beneath the lofty aims of a university, while administrators pleased with their status order new marketing materials bragging about it — and then tell anyone who asks that, obviously, they realize the ranking is beneath the lofty aims of a university.

There are indeed some silly aspects to the U.S. News franchise and its many imitators. The largest part of a university’s U.S. News score, for instance, is based on a survey of presidents, provosts and admissions deans, most of whom have never sat in a class at the colleges they’re judging.

That’s made it easy to dismiss all the efforts to rate colleges as the product of a status-obsessed society with a need to turn everything, even learning, into a competition. As Richard R. Beeman, a historian and former dean at the University of Pennsylvania, has argued, “The very idea that universities with very different institutional cultures and program priorities can be compared, and that the resulting rankings can be useful to students, is highly problematic.”

But Mr. Leonhardt doesn’t quite get it, because the status obsession isn’t irrational. As I previously pointed out, the most prestigious college degrees lead to the best life outcomes.

For people who attend college just to party for four years, nothing is more important than the college’s prestige. Four years of partying at a community college is just a big waste, but four years of partying at Yale can lead to a job as President of the United States.

Mr. Leonhardt suggests some supposedly better ways to rank universities, and while that would be useful, it would be even more useful to rank students in addition to ranking universities. Each graduating student should take standardized tests, both general and specific to his major, and these tests should be certified and available to employers, so employers could hire the most educated students instead of the most prestigious degreed.

However, if we are going to rank universities, the way I see it the only really important criterion is how much money someone with a specific major will make when he graduates. Every college should report labor force outcomes, broken down by major, and the results should be audited by independent auditors and reported in a standardized format so colleges can be compared.

Standardized testing for universities

A federal commission recommends standardized testing for public universities.

I support this recommendation. Massive amounts of money are spent on higher education. The public is entitled to know what benefit, if any, the college students are obtaining from their education.

I suspect that marginal students who don’t belong in college in the first place aren’t learning very much.

Woman $70K in student loan debt with no career

A reader alerted me to a story about a young woman who is $70K in debt becuse of student loans but has no career to show for it.

Of course her mistake is that she majored in economically useless subjects such as anthropology, and she had the silly notion that she could do something with her life to "help" people. No one told her that helping people is an avocation for children of the rich. Children of the working class need to earn a living so maybe they can afford to raise children who will be able to help people.

It's easy to say "serves her right" for majoring in anthropology, but I'm sure that no where along the way did people in authority tell her she was making a dumb choice. No, I'm sure the colleges told her how great their anthropology programs were, and they helped her apply for the loans.

Attending an Ivy League school results in higher income

A few days ago I blogged about the NY Times article which gave very bad advice to prospective college students—that they should go to a less prestigious college that’s a better “fit.”

But in the comments to my post, people wondered if more prestigious schools really conferred any benefit.

A research paper by Stacy Berg Dale and Alan B. Krueger (1998) (link to pdf file) confirms that people who attended more prestigious schools earn more money. They looked only at students who were accepted to multiple colleges, so they were able to determine what happens if a student is accepted to a better school but attends a lesser school. From page 24:

Based on the straightforward regression results in column 1, men who attend the most competitive colleges [according to Barron's 1982 ratings] earn 23 percent more than men who attend very competitive colleges, other variables in the equation being equal.

23 percent is quite a bit of money, it’s almost like getting two college degrees instead of one!

They also discovered that there was a benefit to attending a more expensive school. The more expensive tuition resulted in a lifetime internal rate of return of 20% for men and 25% for women.

THE MOST MIS-CITED STUDY EVER?

Whenever this study has been cited, it has always been for the exact opposite of its actual conclusion. This typical article states that the study “dropped a bomb on the notion of elite-college attendance as essential to success later in life.”

A third finding of the study was that when colleges were rated based on average SAT score, students who attended a school with a lower average SAT score didn’t earn any less money. Everyone used this finding to say it doesn’t matter what school a student attends. But what it really says is that the average SAT score of a school is unimportant, what’s important is how highly “ranked” it is. I suspect that in many cases, when a student attended a school with a lower average SAT score, they did so because the school with the lower score was actually the more prestigious school.

This demonstrates a persistent bias in which the media only reports what people want to hear instead of reporting the truth. Parents want to know that they didn’t harm their kid by sending him to a state school instead of a more prestigious private school. Unfortunately, the reality is that sending your kid to a state school instead of the best private school he can get into does irreparable harm to his future career.

STUDENTS WITH HIGHER SAT SCORES EARN LESS MONEY

The regression analysis in the Dale & Krueger study had a coefficient for the person’s SAT score and a second for the square of the SAT score. Based on these two coefficients, earnings peaks at an SAT score of 1100. People who have an SAT score higher than 1100 earn less money.

I would find it hard to believe if I hadn’t discovered the same thing myself. Seeing the same result in a completely different dataset confirms that I didn’t do anything wrong.

It seems that the only benefit of high intelligence is that it gets you into a better college and graduate school. After you get your degrees, high intelligence is of no benefit in the labor market.

ATHLETES EARN MORE MONEY

The Dale & Krueger regression analysis also included a variable indicating if the person was an athlete. Those who were athletes earned more money. This also confirms my own findings from the General Social Survey.

CONCLUSION

A kid who gets accepted to Harvard because of his athletic ability, even though his SAT score is lower than most other Harvard students', and attends Harvard, will likely earn far more money over the course of his life than an unathletic kid with a perfect SAT score who attends a state school.

THOUGHTS ON THE IMPORTANCE OF COLLEGE

The more I study the subject, the more I come to the conclusion of the immense importance of a college degree and a graduate degree on a person’s future earnings. It’s almost as if a person’s whole life course is set when he walks out of college and begins working at his first job.

NY Times gives bad advice to college bound students

Yesterday's NY Times has some incredibly bad advice for college bound high school students, telling them to not seek a spot in the most prestigious colleges:

Higher education experts have this message for those squabbling over a handful of spots: you’re probably not going to room with the next president anyway. Pay less attention to prestige and more to “fit” — the marriage of interests and comfort level with factors like campus size, access to professors, instruction philosophy.

In case any high school students are reading this, let me give some better advice. When you're looking for a job, employers aren't going to give a crap about whether you "fit" your college or not. They just care about the degree, and a degree from Harvard looks a hell of a lot better than some bogus college where you "fit" better.

Democrats completely wrong on college issue

This policy statment by the Democratic Leadership Committee exemplifies why I can't stand Democrats.

The DLC's stated goal is to make "college as universal as high school," which is a completely bogus goal. Why do people flipping hamburgers at McDonald's need college degrees? If students can't learn basic reading and math skills by the time the graduate from high school, what in the world does the DLC think that college is going to do for them?

The DLC proposal talks about how college graduates earn a lot more money than non-graduates. Of course I agree with this fact, and when examining the data in the General Social Survey I have not found any other demographic factor that's even as close to being as determinant of earnings as a bachelor's degree or a graduate degree.

But the DLC proposal also mentions that "[s]tudents who don't finish college don't earn much more than their counterparts who never entered." which seems like proof to me that that primary benefit of college is the credential and not the actual knowledge capital which college may, or may not, impart on its attendees.

The credential is just a zero-sum transfer of wealth, and college as a whole seems like a negative-sum game, because it's likely that the actual value of the knowledge is less than the cost of tuition plus lost earnings from not working. This means that the more people who attend college, the worse our economy becomes.

The best way to make society more fair is to work towards ending the reliance on credentials. Credentialism will always favor the children of the rich whose parents can afford to buy them better credentials.

Human capital is NOT formal education

Greg Mankiw writes about human capital, and the implication from his post is that human capital is synonymous with formal education.

This is a completely false understanding of human capital.

For the purpose of this post, I define human capital as that mysterious something which allows one person to make $200,000/year or even $1 million/year, while other less fortunate people are earning the minimum wage.

It should be obvious that education is only a tiny part of what constitutes human capital, because immediately after a person graduates from college he is able to earn only a slight bit more than he was before he had a college degree. There are many college grads waiting tables, working at Starbucks, etc. The market puts no value at all on their college degree, indicating that the college education is not what’s creating the human capital.

It is the work experience which allows people to earn more money, so this means that people accumulate human capital by working at jobs.

One may even go so far as to say that a college degree, instead of imparting human capital, actually acts as a barrier to entry limiting the number of people who can board career tracks where they obtain the genuine human capital.

Higher intelligence causes lower income (for people with bachelor's degrees), part III

I previously explained that intelligence is not very highly correlated with income. Based on analysis of the General Social Survey, using educational degree, age, and score on the Wordsum vocabulary test as a proxy for intelligence, I concluded that one’s educational degree is far more important than intelligence when it comes to predicting income, and there even seemed to be some mysterious evidence that high IQ might cause lower income.

This week I decided to analyze the data in a different way, restricting the analysis to respondents with the same highest level of educational attainment.

Here is the shocking conclusion: in the recent years of the GSS (1991 to 2004), for people whose highest level of educational attainment is a bachelor’s degree, there is a negative correlation between intelligence and income. In the 1998 to 2004 data, each point higher on the Wordsum test causes a $1,200 decrease in income.

This trend seems to be increasing with time. Before 1991, there is a slight positive correlation and each point higher on the Wordsum test causes a $500 increase in income.

From 1991 to 1996 we observe the negative correlation, and each point higher on the Wordsum test causes a $700 decrease in income.

This negative correlation only exists for people who have a bachelor’s degree as their highest level of educational attainment. For respondents whose highest degree is high school, there is a very solid positive correlation. In the 1998 to 2004 data, each point higher on the Wordsum test causes a $1700 increase in income. This is not something to get too excited about. There’s a vast difference in ability between someone in the top 5% (Wordsum 10) and someone below the median (Wordsum 5), yet using the figure above the smart person only earns an extra $8,500 per year. This amount corresponds 31% of the median income of $27,500.

There is also a positive correlation for respondents with a graduate degree. In the 1998 to 2004 data, each point higher on the Wordsum test causes a $1,400 increase in income. Because there are only 167 cases in this regression, the t-statistic is only 0.726, so this is a weak correlation. Because the median income for respondents with a graduate degree is $55,000, a five point difference on the Wordsum test corresponds to only 13% of the median income.

So what’s my explanation for all this?

It’s easy enough to explain why people with only high school diplomas earn more if they have a higher score on the Wordsum test. They are being paid slightly more for their higher level of ability. For example, they are more likely to end up in skilled blue collar professions which earn decent salaries.

But why is there a negative correlation for people with only bachelor’s degrees? The obvious conclusion is that what a person majors in at college is far more important in determining future income than how smart the person is. We can also conclude that as intelligence increases, a student is more likely to choose a less financially rewarding major.

This makes sense if you think about it. People of average intelligence who attend college are only attending for the practical benefits of a better career. People of average intelligence don’t appreciate college as a learning experience.

People with higher intelligence enjoy learning, and because of this they may choose a major that seems intellectually interesting (like Roman History or 19th Century English Literature) yet has no practical use.

This negative correlation surely indicates that young people are getting bad career advice from their parents and schools. If there was an efficient system for sorting young people into appropriate majors, surely the more intelligent students would be directed towards fields where their intelligence would most benefit society.

Finally, let’s explain the positive correlation for people who have a graduate degree. In this case, I suspect that higher intelligence predicts a more economically useful major. Specifically, a large percentage of graduate degrees are given to school teachers, because many states either require or strongly encourage their school teachers to get graduate degrees in education. It is well known that school teachers have lower SAT scores (and thus lower intelligence) than other college majors. Respondents with a higher Wordsum score are less likely to be a school teacher, and this explains the very small positive correlation between Wordsum and income.

The final conclusion is that choice of college major and graduate program are the major determinants of future income. Intelligence is only important to the extent that, as intelligence decreases, the universe of educational programs that the student is capable of completing becomes smaller.

Football player scholar, an oxymoron?

A NY Times article reveals massive corruption at Auburn University, where football players receive high grades in classes that require little, if any, work.

From this article we learn that college faculty can be just as corrupt and immoral as business executives or politicians.

The only way to ensure that football players are honestly taking classes and doing work is to have verification by independent auditors. This is why the stock exchanges require that the numbers in annual reports be audited. Everyone knows that business executives will cheat if they can get away with it. Even verification by supposedly independent auditors doesn't prevent the occasional Enron from happening.

One shouldn't give colleges any benefit of the doubt that corporations don't get. This is why I suspect that the job placement figures given out by law schools are inflated.

Regarding the specific issue of football players, I don't understand why they have to learn something besides football. Why not just give out degrees in football?

NY Times explains college gender gap

The NY Times has published the real college gender gap story, which hans't made the most emailed list like the original article.

The gender divide involves people from lower income famlies (where as I pointed out the men see skilled blue collar jobs as better income opportunities), and older students returning to school who are overwhelmingly female.

The author of the article suggests that, gasp!, older men don't go to college because they have to be the "the family breadwinner."

And one can't help but notice that at the masters degree level, women are earning degrees with lousy income potential:

Women earned about 60 percent of the master’s degrees conferred in 2003-4, but the female majority was due largely to women’s predominance in education, nursing, health and social work, fields that together account for 42 percent of master’s degrees.

The nursing degree is an OK deal (the average salary for a nurse with a master's degree is only $65,000, which isn't all that special--despite the alleged huge shortage of nurses--I guess all of that nurse immigration keeps down wages), but an "education" degree just means the degree holder is a school teacher in a state which requires all of its teachers to obtain a master's degree, and social work is a pitifully low paying field.

Feminists, instead of complaining about the wage gap, ought to be encouraging women to get degrees in subjects that are more economically useful.

New York City out to ruin a good school

NEST (New Explorations Into Science, Technology and Math school) is a school for gifted children in New York City serving grades K-12. Schools like NEST are exactly the kinds of schools that cities need to serve middle class parents and keep them from fleeing to the suburbs. But, as documented in a New York Times article, NYC school officials are trying to ruin the school by forcing it to share its building with a “charter school” for “underserved children,” which presumably means poor ghetto youth.

This is the reason why I hate liberals, they are always trying to destroy anything good. Liberals can’t stand the fact that some children are smarter than other children, and they want to fix the “problem” by ensuring that all children attend crappy schools.

The move to ruin NEST is abetted by a wealthy “philanthropist” who clearly would be benefiting the education of New York City children more if she would just spent her money on another summer home instead.

Home schooling with private tutors

There's an article in today's NY Times about home schooling with private tutors.

In what is an elite tweak on home schooling — and a throwback to the gilded days of education by governess or tutor — growing numbers of families are choosing the ultimate in private school: hiring teachers to educate their children in their own homes.

Surprisingly, it doesn't cost much more to have private teachers than it does to send your children to a top private school.

The cost for such teachers generally runs $70 to $110 an hour. And depending on how many hours a teacher works, and how many teachers are involved, the price can equal or surpass tuition in the upper echelon of private schools in New York City or Los Angeles, where $30,000 a year is not unheard of.

One wonders why private school tuition costs so much money. After the teacher's salary and cost of the school building, where else does the money go?

Why is this the most emailed article in today's edition? Is it because people are shocked at the luxuries the rich can afford? Or is it because the typical NY Times reader is in the position to hire his own private teacher for his children.

Only the rich know what it's like to be poor

I think the following quote from a NY Times article about the busy summers of affluent teenagers is especially ironic:

for example, Putney Student Travel, a private company, offers a five-week summer program of seminars at Yale and a trip to Cambodia to address poverty issues for $6,990

It costs how much to learn about poverty? Poor people manage to learn about poverty for free.

* * *

This article is related to my recent post about unpaid internships. The moral is that it costs lots of your parents' money to pad your resume in order to get onto the right track in life.

Why is Harvard the best?

Harvard is the best because it's Harvard.

Yes, that's the answer. Maybe it seems too circular to some readers. Here's an attempt at a longer answer. The prestige of a school is based on the success of its alumni. Harvard has the most successful alumni. Because of this, Harvard attracts the best students who after they graduate, combined with the prestige of their degree, get the best careers and become the most successful themselves. The cycle perpetuates itself.

Harvard alumni control the best career opportunities. If you want to work at the Queens DA's office, a lousy low paying job, you can go to St. John's law school. The ADA interviewing you probably went there hiself. "Wow, you also went to St. John's! Cool, you're hired." But if you want to work at an elite law firm like Cravath Swaine & Moore, then you need to go where the partners of Cravath went, and they went to Harvard.

Harvard has the largest endowment because it's alumni are richest so they have the most to give. Theoretically Harvard could use this mega-endowment to make Harvard even better than it already is, but Harvard chooses not to do that.

In fact, there has been talk in the blogosphere of a Harvard Paradox. According to the Coyote blogger, who attended Harvard Business School, Harvard treats its students like garbage. "I do not think it an exaggeration to say that had Harvard scoured every post office in the country for employees, it could not manage to provide worse customer service day-to-day."

I don't think this is a paradox at all, it's an expected result of a business with monopoly power. Everyone knows that monopolies treat its customers like garbage. Take your local electric company, for example. They know you can't buy electricity from anyone else. So you get treated like garbage.

Because Havard is is head and shoulders above all other schools, there is no substitute for Harvard. (As one of the characters in the movie Soul Man exclaimed, "Havard! There's no subsitute!") In this sense, Harvard has a monopoly. If you are at one of the shoulder schools, you can defect to another shoulder school, so they have to treat the customers better.

At Arizona State University's business school (now called the W.P. Carey School of Business), from a prestige perspective this school is in the stomach. But they sure did treat the students well! They signed us up for classes with a complete minimum of hassle, occasionally treated us to dinners at places like the Pinnacle Peak Patio and the Stonebridge Manor in Mesa. We didn't even have to shop for textbooks. At the beginning of each semester we'd just show up at a private bookstore near campus, give the person behind the counter our name, and they'd hand us a package of all the textbooks needed for the semester, free of charge.

So would I recommend anyone get an MBA from ASU? Hell no, not if you can get into Harvard or another elite school. An MBA from Harvard will get you an elite six figure job at an elite firm where one day you may make seven figures or even eight figures. An MBA from ASU gets you the same garbage job opportunities you had before getting the MBA. Better to get treated like garbage by Harvard for two years, and then after you graduate you make the big bucks and get to pass along the misery and treat the rest of the world like garbage.

Does anyone read the Constitution?

Sandra left the following comment to my post about cursive handwriting:

I can give you a specific example. Last year, I wrote end-of-semester notes to each of my students in my fairly neat, but definitely cursive, handwriting. One of my 9th grade students had to ask another student to read it to him because he had never learned to read cursive.

It also bothers me that such students will not be able to read important documents like the Declaration of Independence or the Constitution in their original form. Granted, these documents are certainly available (and more easily read) in typed form, but I think we lose a vital link with our history when our children need an interpreter to read our founding documents.

So we see, Sandra is worried that not learning how to write in cursive means not being able to read cursive, and consequently this will somehow harm people's understanding of the Constitution.

The bigger problem, Sandra, is that few Americans have even bothered to read the Constitution at all, and those few who read it certainly don't try to understand it, and if they understand it they ignore it.

The Constitution isn't supposed to be a museum piece, it's supposed to define the laws of the United States. And the system of government set up by the Constitution, where the government of the United States is one of limited enumerated powers (per Article II Section 8), and powers not granted to the United States remain with the state governments (per Amendment X), is ignored and not followed.

If the original Constitution is such a bad document that it's not worthy of being followed anymore, then why does it matter if people can't easily read it in its original handwritten form? (I use the word "easily" because I'm sure that a bright person who had a desire to read old documents but never had cursive writing in the third grade would be able to figure it out.)

None of the responses to my post about cursive writing really make any sense. I think the responses reflect a basic human failing, that people illogically hang on to tradition.

Jocks behaving badly

I never heard of the site badjocks.com until reading about it in the NY Times.

The following line from the NY Times article sums the whole thing up:

Members of the women's lacrosse team at Catholic University of America in Washington, D.C., are seen in sexually suggestive poses with a male stripper in just a thong and socks.

If that's going on at a Catholic school, it makes you wonder how the girls behave at atheist schools.

The end of cursive handwriting?

The quality of handwriting is on the decline, and many children are not properly learning cursive writing. There's an old article from 2003, and a newer article from a few days ago about this problem which the older article calls "alarming." And check out the discussion at Slashdot.

My own handwriting is pretty horrid (which makes one wonder why I am so obsessed with pens), and I was never able to write in cursive as quickly as I was able to block letter, despite the fact that my grade school teachers insisted on it and I always got dinged on my report cards for bad handwriting.

It turns out that I was able to have a successful life without being good at cursive writing. The most useful skill I learned in the 6th grade was how to type. Typing has proven to be ten times more useful than writing in cursive, yet only a fraction of the educational time was spent on it--clearly a misallocation of teaching resources.

In law school, I couldn't have been happier when I learned that we were allowed to type our essay exams instead of having to handwrite them. The same was true of the Arizona bar exam.

As an adult, no one wants to read your handwriting. It's only used to take notes for yourself. I'm having trouble trying to figure out if hand writing is important at all?

Writing by hand does have some significant advantages over writing with a computer. You can write if there's no electricity. Even the tiniest and lightest notebook computers are a lot heavier than a pad of paper, and you don't have to worry about dropping or losing your paper. Paper is cheap. If you need to write something and you left your notebook computer at home, you can go into any drugstore and buy a paper notebook for not much more than the price of a cup of coffee at Starubcks. And writing on paper is nearly completely silent. It annoyed me in my classes in law school and graduate business school when people were typing in the middle of the class--even though there were times in graduate business school when I was one of the people typing during class. Although writing by hand still has its uses, in the end no one expects to read your handwriting, it's only for you to retype later if you want anyone else to read it.

Given that people will only write for themselves and not for others to read, it doesn't really make sense to spend so much time teaching children handwriting. Maybe it's time to end the teaching of cursive handwriting and just focus on block lettering? Cursive writing is supposed to be faster, but this seems to be true for only a minority of the population despite all the time and effort spent in grade school. Given the failure to successfully teach cursive writing, it makes a lot more sense for grade schools to just give up and instead focus on legible block lettering.

UPDATE

I have an additional thought in my post Does anyone read the Constitution?

Are students out to get as little as possible?

Inside Higher Ed reveals that professors who are "easy" get higher student reviews.

This inspires Glenn Reynolds to comment, "Education, as they say, is the only consumer product where the consumer is out to get as little as possible for the money."

After thinking about this I realized it's perfectly rational for students to think this way. After all, students are paying for the credential and not the opportunity to learn. With the exception, perhaps, of laboratory or fieldwork classes, anything you learn in college can be learned for a lot less money by buying the textbook at Amazon.com--or even for free by going to a library.

However, the pecuniary return to the student depends upon his grades. A student with a 4.0 GPA who learns a little will get into a better graduate school and have better job opportunities than a student with a 3.0 GPA who learns a lot. So the student with easy professors truly does get more benefit from his college "education."

A better way to fix education than with vouchers

The perceived quality of an elementary or secondary school seems to be entirely a function of the socioeconomic status of the students' parents, even if the people perceiving the quality pretend to themselves that such is not the case.

To state this even more simply (though politically incorrectly), poor children ruin the quality of a school.

Suburbs usually have better schools than cities for the simple reason that, through zoning, suburbs have prevented poor people from living there, ensuring that there are no poor children in the suburban schools.

In my view, the advantage of vouchers is that they will allow better socioeconomic sorting of students. This will benefit middle class parents who will be able to use vouchers plus some extra money they contribute themselves to send their children to a school without poor children whose parents can't afford the extra money.

Other voucher supports believe that vouchers will actually improve the quality of instruction by creating competitive incentives. After thinking about this, I don't think this will make much of a difference. Parents probably have no basis to judge the quality of instruction. Parents are only able to judge the quality of a school based on the socieoeconomic status of the other parents.

The supposedly high quality schools in the suburbs may actually have pretty bad instruction, but no one notices so long as the students do well on standardized tests. Test performance is almost entirely a function of the students' innate intelligence, which is correlated with their parents' socioeconomic status. And that is the primary reason why socioeconomic status determines school quality.

Instead of sorting students by socioeconomic status, it would be more efficient to sort them by intelligence. And this is something that vouchers can't really accomplish, but a large public school system can accomplish this by testing students and busing them to a school with students of like intelligence. This will ensure that level of instruction can be geared to all of the children in the class. The discipline problems are almost all caused by the less intelligent children, and they will be congregated in schools where discipline can be the primary focus.

Sorting by intelligence would be the fairest and best way to help poor children who are smarter than their peers, because they would be given the opportunity to escape the ghetto and get a better education.

UPDATE

People stumbling across this post seem to take issue with the notion that intelligence is a trait that varies between children. Please refer to my post NY Times says IQ is genetic.